Analyst explains Nike's big stock spike

BMO Managing Director and Senior Analyst Simeon Siegel explains why Nike rose double-digit percentage points during Friday's trading day.

Video Transcript

SEANA SMITH: Let's take a look at Nike, because shares are soaring today. It's one of the top trending tickers on Yahoo Finance [INAUDIBLE], hitting an all-time high. This comes after the company reported its best sales number ever. Jordan brand, for example, full year revenue there, growth of 31%. And then for the quarter, Nike Direct, its direct-to-consumer strategy, posting a 60% jump in sales.

Let's talk all about this with Simeon Siegel, BMO Capital Markets Senior Retail and E-commerce Analyst. And Simeon, I know you're very bullish on Nike. You have an outperform rating. You've raised your price target, after last night's results, to $174 a share. I guess, just your big takeaway in this report. What excited you most?

SIMEON SIEGEL: Good to see you guys. I think that when we can talk about a company the size of Nike's scale still blowing away numbers from a revenue perspective, but also from a margin perspective, they really gave you a lot to choose from. And Seana, to your point, listen, at the end of the day, the Jordan brand in and of itself is one of the largest brands in the history of time. I mean, that's a fascinating thing to think about the smaller part of Nike still far outpaces everyone else.

So I think that very simply, with the exception of China, which probably was a little better than fears walking into the print, the reality is this company showed remarkable outperformance across the board.

JARED BLIKRE: And Simeon, let me ask you about their direct-to-consumer strategy and also just their market dominance. This report just blew away a lot of the numbers. We're having the best day in Nike in, I think, one of the fourth or fifth best days since their IPO in the 1980s. How does a company this big execute seemingly this well? How do they take that into the future? And can they repeat this in the coming quarters?

SIMEON SIEGEL: Yeah. I think there's this interesting parallel between Nike and even an Amazon, where when you operate in the business that has so many variable expenses, when your competitors are forced to catch up to you, being the largest, being willing to take gross margin saves and plow them back into, let's just call it marketing, for the sake of conversation, it's very hard to compete. So there's this moment where you create this flywheel where being the largest in a variable world also means others have to fight to catch up.

So would we have thought they would have put out this degree of a beat? No. I mean, this is very impressive, which is why this company is up 15%. But I think thinking through the long term, at the end of the day, when you have the scale, the marketing scale and the R&D budget, that they have, they're very hard to compete against. And I think that-- and we talk about this on the program-- I think that at the end of the day, it's important to acknowledge that not only are they one of the largest sellers of consumer product of all time, they're probably also one of the best marketers of all time.

SEANA SMITH: Well, Simeon, one of the challenges, I guess we can say, at least in the short term, is going to be the supply chain delays. And we know management made some comments on that, saying that they expect supply chain delays and also higher logistics costs to persist here for most of fiscal year 2022. I guess from your perspective, how big of a headwind is this for Nike, at least in the coming quarters?

SIMEON SIEGEL: Yeah. So we're in this fascinating period where there's this trifecta of there's the greatest capacity to spend, because of stimulus, there's the greatest desire to spend, because people are getting out of their house, and yet there's nothing to spend on because of all these supply chain bottlenecks. So on the one hand, that hurts the potential unit velocity that could otherwise happen. But on the flip side of that, go try to find a discount. They don't exist.

So the promotional atmosphere is actually very much in favor of the brands. People are charging much higher price points than they otherwise would have. So I think that that's one counter, as we think about what does retail have in its back pocket. You have people that want to spend, feel like they're able to spend, and they're willing to put up higher prices because of scarcity value.

The second point, though, I would say-- and it's somewhat unfair but it plays off of the last point-- this is an issue plaguing all of retail. And there's a question we have to ask. If you're the largest, if you have a few containers out there or if you have capacity in your warehouse and your manufacturing facility, are you going to give it to smaller players that you're not entirely sure what kind of an order they're going to give you, or are you going to consolidate it amongst the largest? I'm inclined to think we go towards the latter.

So as this bottleneck issue hits, it probably hits the smaller companies much harder and disproportionately than it hits the larger companies, essentially continuing this notion of Nike and their ever deepening moat. And it sounds unfair, but that's where the size and scale really comes in handy. Andy

SEANA SMITH: Simeon Siegel, great to speak with you. BMO Capital Markets Senior Retail and E-commerce Analyst. Thanks so much for breaking down, again, Nike, one of the top trending tickers on the site. Shares up just around 15%.